BIS UNVEILS GLOBAL CODE OF CONDUCT FOR FOREIGN-EXCHANGE TRADING
26 May 2016, 16:00
By Katy Burne
A body of global standards-setters Thursday laid out new principles for the safer and more transparent functioning of the world’s foreign-exchange markets, aiming to restore trust in currency trading following incidents of misconduct in recent years.
The first phase of principles was announced by the Bank for International Settlements, whose governors started working on a new code of conduct for the foreign exchange market one year ago. Phase two, scheduled for release in May 2017, will contain the final measures, the BIS said.
The six principles include new standards for ethics and addressing conflicts of interest with clients; better governance; information sharing and protecting customer interests; fair and transparent dealing; robust risk management and compliance controls; and timely confirmations and settlement.
The idea of having currency traders adhere to a new global code comes as investors have filed lawsuits against banks, alleging they conspired to rig global foreign exchange prices as far back as 2003.
The private lawsuits followed international regulatory investigations into manipulation of currency markets, as well as alleged rigging of global interest-rate benchmarks, credit derivatives and commodities.
Leading the development of the new global standards were Guy Debelle, assistant governor in financial markets at the Reserve Bank of Australia, who also chairs the Foreign Exchange Working Group of the BIS; Simon Potter, head of markets at the Federal Reserve Bank of New York; and Chris Salmon, executive director in markets at the Bank of England.
“The foreign exchange market is one of the most vital parts of the financial plumbing,” said Mr. Debelle in a statement prepared for release of the standards. “One of the guiding principles underpinning our work is that the Code should promote a robust, fair, liquid, open, and transparent market.”
Supporting these overseers was a group of industry participants chaired by David Puth, chief executive of foreign exchange settlements firm CLS Group. He said the code would have “far-reaching implications and ensure the long-term integrity and effective functioning of the wholesale foreign exchange market.”
When completed in May next year, the code will supersede all other existing codes but wouldn’t impose legal or regulatory obligations on market participants. “The code will supplement local laws, rules and regulation by identifying good practices and processes,” said Mr. Puth in prepared remarks.
The principles will apply to all banks, brokers, investors, treasurers, settlements providers, trading venues, and other participants. In blessing the new standards, central banks from around the world said they would adhere to the new code, except where it would inhibit their policy functions, and they expect private-sector traders to do the same.
Indicative examples of unacceptable practices include: trading in ways designed to disrupt the market; buying or selling larger amounts than are in the client’s interest with the intent of inflating prices against the client; buying or selling shortly before fixing rates are calculated so as to negatively move market prices; and “acting with other market participants to inflate or deflate a fixing rate against the interests of a client.”
Write to Katy Burne at <[email protected]>
(END) Dow Jones Newswires